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Good Luck Chasing Nike

Stocks in this article: NKE US ADDYY LULU SKX MCD KO

Futures, (as it sounds) typically represent something like a "backlog" or a relied-upon commitment to buy. It's not an exact science for predicting Nike's sales or that of any other company. But it's nonetheless a worthwhile gauge of product interest. In terms of profitability, Nike's management presented me nothing that I could criticize.

The company earned 76 cents per share, which was 27% higher year over year, helped by a 1% year-over-year increase in gross margin - beating its own guidance. Meanwhile, operating margin advanced 130 basis points, spurring 19% jump in operating income. While I could nitpick about the company's 7% increase in inventory, this is still 1% lower than the futures that we've discussed.

Had inventory been lower, say by 2%, we would then be forced to speculate about fulfillment and question whether Nike will be able to meet demand. In terms of outlook, management expects first-quarter revenue fiscal-year 2014 to grow at a mid-to-high-single digit rate. Management didn't offer a specific number, but I'm modeling 7.5% to 8%, which is the average growth rate of the past four quarters.

Gross margins are expected to come in flat. But management has outlined strategies to improve efficiency and production methods. There are still many unknowns, though, regarding average selling prices per unit. But management did say it will take a "selective price increase" approach as they strengthening the premium segment its footwear and apparel businesses.

As I've said above, I believe Nike has some opportunities to lead in apparel. Given its current dominance in footwear over the likes of Skechers (SKX), New Balance and Reebok, Nike management will need new challenges, especially with revenue growth already at impressive levels. I'm not discounting that this is a great problem for any company to have. But failing to maximize the growth potential in apparel where Lululemon is dominating is still a missed opportunity -- at least in my view.

In closing, I should have lived up to the company's slogan to "just do it." Instead, I tried to time the right entry point and I allowed the stock to get away. There haven't been many. I'm not suggesting it's too late for new investors, though. You can still "step in" this company and do well in the long term.

I believe that Nike, as with McDonald's (MCD) and Coca-Cola (KO) is one of those brands that you buy and store away forever. The name alone is worth something. But in my case, after missing such enormous gains chasing this stock, I feel out of breath.

At the time of publication, the author was long AAPL.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and the founder and producer of the investor Web site Saint's Sense. He has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.
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